Parking your hard-earned money in stocks based on top-line growth and profit numbers might be a good option. But choosing stocks based on cash flows can be far more rewarding. This is because cash indicates a company’s true financial health and holds the key for its existence, development and success.
This holds more relevance in the current context as the ongoing coronavirus pandemic is leading to uncertainties in the global economy, market disruptions and dislocations, and liquidity concerns.
In fact, even a profitable business can succumb to failure if its cash flow is uneven and eventually file for bankruptcy. But a company with solid cash flow can effectively endure any market mayhem and still be on the growth curve because cash offers the flexibility to make decisions, the means to make potential investments and the fuel to run its growth engine. Moreover, cash indicates that profits are being channelized in the right direction.
To figure out this efficiency, one needs to consider a company’s net cash flow. While in any business cash moves in and out, it is net cash flow that explains how much money a company is actually generating.
If a company is experiencing a positive cash flow then it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in business, endure downturns and finally return wealth to shareholders. On the other hand, a negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, having a positive cash flow merely does not secure a company’s future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.
Therefore, keep yourself abreast with the following screen to bet on stocks with rising cash flows.
To find stocks that have seen increasing cash flow over time, we ran the screen for those whose cash flow in the latest reported quarter was at least equal to or greater than the 5-year average cash flow per common share. This implies a positive trend and increasing cash over a period of time.
In addition to this we chose:
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the company’s future performance.
Current Price greater than or equal to $5: This sieves out low-priced stocks.
VGM Score of B or better: This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking winning stocks in their individual industry categories.
Here are the five stocks that qualified the screening:
PEUGEOT SA (PUGOY - Free Report) manufactures and sells passenger cars and light commercial vehicles under the Peugeot, Citroën and DS brands; and automotive equipment including interior systems, automotive seating, automotive exteriors and emission-control technologies. It also offers retail financing to car customers and wholesale financing to dealer networks. Currently, the stock has a VGM Score of A. The Zacks Consensus Estimate for its ongoing-year earnings has moved up significantly to $2.30 from 68 cents in the past two months.
Griffon Corporation (GFF - Free Report) is a diversified management and holding company conducting business through wholly owned subsidiaries. Currently, the stock has a VGM Score of A. The Zacks Consensus Estimate for fiscal 2020 earnings has been revised upward by 76.7% to $1.52 in 60 days’ time.
Aviat Networks, Inc. (AVNW - Free Report) is a global supplier of wireless network solutions and network management software, backed by a suite of professional services and support. At present, the stock has a VGM Score of B.The Zacks Consensus Estimate for fiscal 2021 earnings has been revised upward significantly to $2.50 from $1.60 in a week’s time.
Herbalife Nutrition Ltd. (HLF - Free Report) : Headquartered in Los Angeles, CA, Herbalife develops and distributes healthy nutrition solutions. The company has a VGM Score of B as well as a decent earnings surprise history, having surpassed estimates in each of the last four quarters, the earnings surprise being 24.8%, on average. Moreover, the Zacks Consensus Estimate of $3.47 for the ongoing year’s earnings has been revised 2.1% upward in the past month.
Primoris Services Corporation (PRIM - Free Report) is a Dallas, TX-based specialty contractor and infrastructure company. At present, the stock has a VGM Score of B. The Zacks Consensus Estimate of $1.70 for current-year earnings has moved 12.6% north over the past 30 days.
Start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.